Explanation: what happens to Europe’s energy if Russia acts?

Fears are growing about what would happen to Europe’s energy supply if Russia were to invade Ukraine and then halt natural gas exports in retaliation for US and EU sanctions.

The tensions show the risk of Europe’s dependence on Russia for energy, which provides around a third of the continent’s natural gas.

And Europe’s stock is already low. While the United States has pledged to help by increasing exports of liquefied natural gas, or LNG, it can only produce a limited amount at a time.

This leaves Europe in a potential crisis, with its gas already undermined by a cold winter last year, a summer with little renewable energy production and Russia producing less than usual. Prices soared, crushing households and businesses.

Here’s what to know about Europe’s energy supply if tensions escalate into war and Russia is hit with sanctions: Will Russia cut off gas supplies to Europe?

No one knows for sure, but a full shutdown is considered unlikely, as it would be mutually destructive.

Russian officials have not indicated they would consider cutting supplies in the event of new sanctions. Moscow depends on energy exports, and although it has just signed a gas deal with China, Europe is a key source of revenue.

Europe is also dependent on Russia, so any Western sanctions would likely avoid directly targeting Russian energy supplies.

More likely, experts say, Russia would withhold gas sent through pipelines crossing Ukraine. Russia pumped 175 billion cubic meters of gas into Europe last year, nearly a quarter of it through these pipelines, according to S&P Global Platts. This would leave the pipelines under the Baltic Sea and through Poland still in operation.

“I think that in the event of even a less serious Russian attack on Ukraine, the Russians are almost certain to cut off the gas passing through Ukraine on the way to Germany,” said former American diplomat Dan Fried, who as the State Department’s coordinator for sanctions policy helped craft 2014 measures against Russia when it invaded and annexed Ukraine’s Crimean peninsula.

Russia could then offer to make up lost gas if Germany approves the new Nord Stream 2 gas pipeline, whose operators could potentially face US sanctions even if a recent vote to do so failed.

German officials also said the pipeline blockade operation would be “on the table” in the event of an invasion.

Disruption of gas supply beyond Ukrainian pipelines less likely: ‘If they push too far, they will make a breach with Europe irreparable, and they have to sell the oil and gas somewhere’ , Fried said.

What can the United States do?

It is a major gas producer and is already shipping record levels of liquefied natural gas, or LNG, by ship around the world. This could only help Europe a little.
“We’re talking about small increases in the size of US exports, whereas the hole Europe would have to fill if Russia backed down or Europe cut Russia would be much bigger than that,” said senior analyst Ross Wyeno. for the Americas. LNG at S&P.

The Biden administration has been talking to gas producers around the world about whether they can ramp up production and ship to Europe, and it has been working to identify natural gas supplies from North Africa, from the Middle East, Asia and the United States.

The administration is also discussing with buyers the possibility of waiting.

“Is there any other country that was planning to get a shipment of LNG that doesn’t need it and could give it to Europe?” said Amy Myers Jaffe, managing director of the Climate Policy Lab at Tufts University, mentioning Brazil or countries in Asia.

Over the past month, two-thirds of US LNG exports have gone to Europe. Some ships filled with LNG were heading for Asia but turned back to Europe because buyers there offered to pay higher prices, S&P said.

Is there enough liquefied gas in the world to solve the problem?

Not in the event of a complete cut, and it cannot be increased overnight. Export terminals cost billions of dollars to build and are operating at full capacity in the United States.

Even if all LNG import facilities in Europe were operating at full capacity, the amount of gas would only be about two-thirds of what Russia sends through pipelines, Jaffe said.

And there could be difficulties distributing LNG to parts of Europe that have fewer pipeline connections.

If Russia stopped shipping only the gas that passes through Ukraine, it would take the equivalent of about 1.27 additional LNG shipments per day to replace that supply, said Luke Cottell, principal LNG analyst at S&P. . Russia could also redirect some of that gas to other pipelines, reducing the need for additional LNG to about half a load per day, he said.

Is Russia already supplying less gas?

Russia has fulfilled its long-term contracts to supply gas to Europe, but it is selling less on the spot market and has not filled the storage containers it has in Europe, experts say.

” It’s already arrived. It’s not theoretical,” Jaffe said.

Russian reductions in spot gas supplies contributed to the sharp rise in natural gas prices in Europe. They reached 166 euros ($190) per megawatt-hour in December, more than eight times their level at the start of 2021. Prices have fallen to less than 80 euros per kilowatt-hour as more LNG arrives.

But consumers are feeling the squeeze from higher electricity and gas bills. European governments are deploying subsidies and tax breaks to ease financial stress on households.

Is there an impact in the United States?

As the United States increased its LNG exports, domestic natural gas prices also rose. More than 10% of gas produced in the United States last year was exported, said Clark Williams-Derry, an analyst at the Institute for Energy Economics and Financial Analysis.

U.S. gasoline prices soared more than 30% in the last week of January, largely due to an approaching winter storm in New England, Williams-Derry said. But prices were also hurt by tighter U.S. supplies amid uncertainty over Russia, he said.

“Russia is disrupting European gas markets, with the United States talking about essentially exporting the upcoming Berlin airlift for natural gas to Europe,” he said.

If the United States pushes to increase LNG exports, domestic prices would likely rise, Williams-Derry added.

Ten Democratic senators, led by Jack Reed of Rhode Island and Angus King of Maine, recently urged the Department of Energy to study the effect of rising exports on domestic prices and suspend approvals for proposed terminals.

They said they understood that “geopolitical factors” were causing more gas to be sent.

“However, the administration must also consider the potential increased costs to American families,” the senators said.

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